EU solvency plans alarm UK pensions industry

UK pension schemes and consultants have expressed serious concerns about European plans to implement Solvency II-style rules across the EU.

The European Insurance and Occupational Pensions Authority (EIOPA) last week closed its consultation on the Institutions for Occupational Retirement Provisions Directive (IORP).

The IORP proposes reforms to level the playing field of pension provision across European states, including a proposal to increase solvency levels within pension schemes to improve stability.

However, several UK bodies have expressed reservations about the proposals.

The National Employment Savings Trust's (NEST) chair Lawrence Churchill said:

"EIOPA's consultation could lead to a number of requirements that mean increased costs for defined contribution (DC) schemes such as NEST, including the potential requirement to hold additional capital against operational risk.

"We urge EIOPA to carry out a full impact assessment of the proposals. NEST believes that any new European regulatory proposals should take account of the diversity of pension provision in Europe and avoid prescriptive regulations that would inhibit this diversity."

The Financial Reporting Council chief executive Stephen Haddrill expressed similar concerns.

"The regulatory and professional framework for UK pension funds promotes high quality provision supported by good corporate governance and advice. The application of Solvency II requirements will make them far more expensive and risky for many employers leading to their early closure," he said.

Andrew Vaughan, partner at Barnett Waddingham said: "Defined benefit (DB) schemes were not designed to be funded to insurance company levels and are not run on a competitive or profit making basis."

JP Morgan estimated that if the proposals were implemented in their current form, they would add an extra funding burden of £600bn UK pension schemes.